EV Critical Minerals Rule Gives Automakers 2.5 Years of Carveouts, Rollup Allowance
Electric vehicle manufacturers in North America will get an extended phase-in on North American content rules for battery materials that are not yet practical to trace, as well as graphite and some critical minerals which, according to the Inflation Reduction Act, were supposed to preclude tax credits for car buyers next year.
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The Treasury Department released the final rule May 3. The rule also gives compliance guidance on how to calculate the percentage value of critical minerals and battery components needed to qualify for the full $7,500 credit. Currently, manufacturers use a 50% rollup methodology for critical minerals; they will be able to continue to do so in 2025 and 2026, but must share a detailed supply chain map that shows the value-added percentage for extraction, processing and recycling from 2027 onward.
The foreign entity of concern restrictions for graphite and the other materials will start in 2027, but, in order to qualify for the phase-in, carmakers or batterymakers must submit a plan to the government on where they will buy these goods starting in 2027.
Alliance for Automotive Innovation CEO John Bozzella said Treasury followed his trade group's recommendations in its final rule. "It makes good sense for investment, job creation and consumer EV adoption," he said.
“The Treasury rules appear to recognize the realities of the global supply chain by providing some temporary flexibility in terms of where the critical minerals in EV batteries can be sourced. That’s helpful as more automotive supply chains and battery production is localized to the U.S. and our allies.”
Autos Drive America CEO Jennifer Safavian, who represents foreign nameplate automakers (except Chrysler) with U.S. assembly plants, said: "It will take time for the global production and sourcing of graphite and other critical minerals needed to produce EVs to match the strict standards required by automakers. Until then, sourcing flexibility is paramount as automakers in the U.S. work to build up domestic supply chains and diversify their sourcing.
"We commend the flexibility today’s guidance creates for automakers to qualify for the Clean Vehicle Tax Credit, and we urge the administration to quickly conclude critical mineral agreements with allied nations to further ensure a diversified, secure, and robust supply chain for EV production in the United States."
Zero Emission Transportation Association Executive Director Albert Gore III issued a statement that said: "The Administration has finalized rules that, along with the escalating battery and mineral content sourcing requirements in the clean vehicle credit, is rightly oriented around strengthening our control of battery and mineral supply chains and creating jobs across the United States. The stringency of the final rules are consistent with law and appropriately balances those goals."
Gore said that by finalizing the rules, agencies are providing businesses with the regulatory certainty they need to continue investing in the U.S.
The press release from Treasury announcing the rule emphasized that automakers and electric vehicle battery companies have announced $173 billion in EV investments in the U.S. in the last three years.
However, Sen. Joe Manchin, D-W.Va., who authored many of the law's provisions aimed at bolstering domestic production of EV batteries, blasted the exceptions, including the 50% rollup.
"The Administration has made clear from Day 1 of implementing the consumer electric vehicle tax credit in the Inflation Reduction Act that they will break the law in pursuit of their goal to flood the market with electric vehicles as quickly as possible," he said. He called the exceptions to the foreign entity of concern "a long-term pathway for these countries to remain in our supply chains. It’s outrageous and illegal."
Manchin said he would try to overturn the rule through a vote in Congress; however, in order to be successful, the president would either have to decide not to veto it, or it would have to pass by a veto-proof margin.
Even with the flexibilities, only Volkswagen, Tesla, GM, Acura, Ford 150s and Honda EVs qualify for the full $7,500; Nissan Leafs have enough battery content but not critical minerals, so they qualify for $3,750; Rivian models that sell for less than $80,000 also qualify for a half-credit. A Chrysler minivan is the only plug-in hybrid eligible for the full $7,500.
The Mustang Mach-E had qualified for a half-credit based on the battery until the stricter standards in 2024. It was still the third best-selling EV in the first quarter in the U.S. after Tesla's Model 3 and Model Y.
In the draft rule (see 2312010005), Treasury said electrolyte salts, electrode binders and electrolyte additives were not traceable because they were such low value, as were cathode active materials powders, anode active materials powders and foils. The agency said those materials were less than 2% of the value of critical minerals.